MFs fail the portfolio rejig math

MUMBAI: It is not just retail investors who were caught offguard at the onset of a bearish phase in January.

Though the market has fallen over 35% across sectors from the peak, mutual funds have not quite succeeded in realigning their investment portfolios in tune with the prevailing market conditions.

If you exclude minor tweaking in the financial sector, allocation (weightage) to other sectors remains more or less unchanged over the past three months.

If you look into sectoral allocations as a percentage of net assets, beaten down sectors such as construction, metals and automobiles have only decreased in the range of 0.2-1% between February and May.

Allocation to banking and financial companies have fallen 3.8% during the same period. Fund managers blame the inability to realign portfolios on ���lack of reaction time��� during the fall.

���Portfolios have not really changed because fund managers did not get the time to realign their portfolios as the market fell. Had they transacted during the fall, they���d have made huge losses in absolute terms,��� said Taurus Mutual Fund CEO Waqar Naqvi.

This rationale may hold ground as mutual fund managers would have been forced to remain mute spectators as market tumbled in end-February and March. The period between January and March has been the worst quarter for mutual funds for over a decade.

Funds in the diversified equity category, which has the largest number of funds (194) as well as the highest investor interest, lost an average of 28.3%. Individual funds in the category lost between 16.2% and 40.6%, during which the BSE Sensex and the NSE Nifty both lost 22.9%.

���Even if you look at mutual fund portfolios now, funds that have BSE 100 stocks may have done better (as large-caps have done better than mid-caps) than the ones having top mid-caps or bottom mid-cap stocks. This affirms the premise that fund managers have not ventured out beyond BSE 100 to structure their portfolios after the initial fall in market,��� Mr Naqvi added.

It should also be remembered that several funds, all through this month, were sitting on 20-25% cash. According to mutual fund analysts, UTI Spread Fund, Kotak Equity Arbitrage Fund, UTI Long-Term Advantage Fund, Reliance Natural Resources, Birla Sunlife Pure Value Fund, Reliance Quant Plus Fund, UTI Infrastructure Advantage Fund and ICICI Prudential Blended Plan are some of the cash-rich equity diversified funds waiting for right valuations to invest.

���Though the market has been falling at a rapid pace, several fund managers (of diversified funds) have managed to reallocate their investments into defensive sectors as the market entered into a bearish phase,��� said Birla Sunlife AMC CIO A Balasubramanian.

���If you look at individual portfolios, several funds have cut exposure to stocks in financial and real estate sectors, and increased allocation to sectors like IT, pharma and telecom,��� Mr Balasubramanian added.